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Contract No. DE-AC36-08GO28308

Exploring the Potential 

Business Case for Synergies 

Between Natural Gas and 

Renewable Energy

Jaquelin Cochran, Owen Zinaman, Jeffrey Logan, 

and Doug Arent 

National Renewable Energy Laboratory (NREL)

Technical Report

NREL/TP-6A50-60052

February 2014
The Joint Institute for Strategic Energy Analysis is operated by the Alliance 

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303-275-3000 • www.jisea.org Contract No. DE-AC36-08GO28308

Exploring the Potential 

Business Case for Synergies 

Between Natural Gas and 

Renewable Energy

Jaquelin Cochran, Owen Zinaman, Jeffrey Logan, 

and Doug Arent 

National Renewable Energy Laboratory (NREL)

Prepared under Task No. WWJI.1015

Technical Report

NREL/TP-6A50-60052

February 2014
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Acknowledgments

This paper was prepared with input and feedback from many experts. The authors would like to 

acknowledge Mark Boling, Southwestern Energy; Steven Corneli, NRG Energy; Sherman 

Knight, Competitive Power Ventures; Morgan Bazilian, Joint Institute for Strategic Energy 

Analysis (JISEA); and Dean Armstrong, Scott Gossett, Mike Meshek, Mary Lukkonen, Niccolo 

Aieta, and Ben Sigrin, National Renewable Energy Laboratory. The authors would also like to 

acknowledge the numerous and substantial contributions made by participants at the September 

2013 Leadership Forum on this topic hosted by JISEA and the Center for the New Energy 

Economy.
iv

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Abstract

Natural gas and renewable energy each contribute to economic growth, energy independence, 

and carbon mitigation, sometimes independently and sometimes collectively. Often, natural gas 

and renewables are considered competitors in markets, such as those for bulk electricity. This 

paper attempts to address the question, “Given near- and long-term needs for abundant, cleaner 

energy sources and decarbonization, how can more compelling business models be created so 

that these two domestic forms of energy work in greater concert?” This paper explores revenue 

opportunities that emerge from systems-level perspectives in “bulk energy” (large-scale 

electricity and natural gas production, transmission, and trade) and four “distribution edge” 

subsectors: industrial, residential, commercial, and transportation end uses.

Synergies between natural gas and renewable energy are found to exist at multiple levels: from 

hybrid systems that optimize assets—e.g., smart buildings with both photovoltaic (PV) and 

natural gas combined heat and power (CHP) systems—to transmission corridors that serve both 

technologies. The business models that capitalize on both renewable energy and natural gas can 

access new revenue streams, including wholesale market opportunities for the distribution edge 

(e.g., demand response aggregation), upstream and downstream arbitrage opportunities from 

shared infrastructure, and energy services that offer the customer resiliency, reliability, and 

reduced costs. 
v

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Table of Contents

Introduction ................................................................................................................................................. 1

Synergies in Bulk Energy........................................................................................................................... 2

Synergies at the “Distribution Edge”........................................................................................................ 8

Industrial CogenerationOptimization for Multiple Markets............................................................... 8

Residential Smart Hybrid Energy System............................................................................................ 11

Commercial Distributed Generation Hybrid Energy System............................................................... 14

TransportationArbitrage Opportunities through Alternative Fuel Vehicles..................................... 17

Pathways to Emerging Business Opportunities.................................................................................... 20

Conclusions............................................................................................................................................... 23

References................................................................................................................................................. 24

Appendix. Recent JISEA Publications on Natural Gas and Renewable Energy ................................ 27

List of Figures

Figure 1. Examples of revenue opportunities from synergies in the bulk energy sector.................6

Figure 2. Examples of revenue opportunities from synergies in the industrial sector.....................9

Figure 3. Examples of revenue opportunities from synergies in the residential sector.................12

Figure 4. Examples of revenue opportunities from synergies in the commercial sector...............15

Figure 5. Examples of revenue opportunities from synergies in the transportation sector............18

List of Text Boxes

Text Box 1. Value Proposition of Synergies in the Bulk Power Sector ..........................................7

Text Box 2. Untapped Technical Potential......................................................................................8

Text Box 3. Value Proposition of Synergies in the Industrial Sector............................................10

Text Box 4. Value Proposition of Synergies in the Residential Sector .........................................13

Text Box 5. Value Proposition of Synergies in the Commercial Sector .......................................16

Text Box 6. Value Proposition of Synergies in the Transportation Sector....................................19
1

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Introduction

In his 2013 State of the Union address,1 President Obama heralded the contributions of both 

natural gas and renewable energy in creating economic growth, strengthening energy 

independence, and reducing the threat of climate change. The United States is in the midst of an 

energy transition with a relative abundance of unconventional natural gas and oil. Deployment of 

renewable energy and energy efficiency is also growing at record levels. These developments 

have begun to transform the national energy landscape, and spurred reevaluation of the most 

effective way to provide consumers with reliable and low-cost energy services in the context of 

broader public policy objectives.

Often, natural gas and renewables are considered competitors in markets, such as those for bulk 

electricity. This paper, building on previous work by the Joint Institute for Strategic Energy 

Analysis (JISEA), attempts to address the question, “Given near- and long-term needs for 

abundant, cleaner energy sources and decarbonization, how can more compelling business 

models be created so that these two domestic forms of energy work in greater concert?” 

This paper explores some potential revenue opportunities in which natural gas and renewables 

may offer a better value proposition by working together. Synergies between natural gas and 

renewable energy are found to exist at multiple levels: from hybrid systems that optimize 

assets—e.g., smart buildings with both PV and natural gas CHP systems—to investment 

portfolios that address business and financial risks through asset diversification. 

Evaluating these potential synergies raises many questions, at all scales, including:

• What technical, spatial, temporal, and financial synergies might exist in bulk and 

distributed energy systems? 

• Might wind and natural gas developers consider new business models such as joint 

transmission investments?

• What are the pros and cons of considering hybrid gas-renewable system configurations 

and services? 

Potential business configurations for synergies between natural gas and renewable energy are 

explored in five sectors: bulk energy,

2 andat the distribution edge of the electricity and natural 

gas networksindustrial, residential, commercial, and transportation end uses. Throughout the 

paper, illustrations and examples are meant to spur thought, discussion, and action. They do not 

represent a comprehensive list of opportunities or of any complete value chain.

3

 1 For the full text of the address, see http://www.whitehouse.gov/photos-and-video/video/2013/02/12/2013-stateunion-address-0. 2 “Bulk energy” is used as a term to group the multiple energy sub-sectors involved in large-scale electricity and 

natural gas production, transmission, and trading.

3 While this paper explores opportunities at the distribution edge by sector, many opportunities for collaboration 

exist across sectors.
2

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Synergies in Bulk Energy

The U.S. electric sector is experiencing unprecedented change due to a combination of lowpriced natural gas, stricter environmental standards, and rapid growth of wind and solar 

generation. These changes have led to a swift decline in coal and oil fired generation. 

Low-priced natural gas has not only impacted coal use, but it has also been presented as 

“crowding out” nuclear and renewables (Lacey 2012; Weiss et al. 2013). However, rather than 

view these industries as competitors, we can note that natural gas and renewable energy

investments have different risk profiles and offer complementary portfolio benefits (Lee et al. 

2012).

4 Typically, these complementarities relate to financial risk hedging and reliability (Wiser 

et al. 2004; Jenkin et al. 2013). For example, wind and solar energy have no fuel costs and 

therefore zero fuel price risk across all timeframes, but their variable and uncertain generation 

profiles require a flexible, responsive power system. Power generation based on natural gas 

offers the flexibility and increased dispatchability that complements renewable energy power 

generation but at the risk of increased fuel price volatility and the challenge, in some regions, of 

ensuring adequate and timely gas deliverability (O'Loughlin et al. 2012). Furthermore, while 

natural gas has clear environmental advantages when used in place of coal, it still emits

greenhouse gases; the long-term risks to a portfolio of generating options might be managed by 

adding renewables (Logan et al. 2012).

Planning tools that incorporate portfolio risk are one option that may lead to more

complementary natural gas and renewable energy use (Synapse 2006; Gampert and Madlener 

2010; Swisher 2011). This option, however, does not fully capture potential business 

opportunities for both energy sources in bulk energy markets. Additional synergistic 

opportunities include joint transmission corridors, colocation, hybrid energy systems, wholesale 

power markets, increased coordination, and joint financing.

Joint Transmission Corridors

Transmission infrastructure, including electricity lines and natural gas pipelines, is key to 

opening market opportunities for renewable energy and natural gas in rural areas. Particularly for 

areas in the Midwest, such as North Dakota, wind and natural gas resources are abundant; yet,

with insufficient transmission capacity to gather and deliver energy, development is limited or 

potential profits literally flared. Stakeholders could propose joint transmission corridors (for 

pipelines, roads, and wires) to service resource-rich areas. These investment opportunities could 

have powerful benefits in reducing flared natural gas and boosting access to very high quality 

wind resources, for example.

 4 Nuclear, coal, and other power generation technologies also have distinctly different risk profiles than natural gas, 

but they are beyond the scope of this paper. 
3

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Colocation 

Many technologies can offer benefits from joint location. These include:

• Natural gas, wind, and compressed air energy storage (CAES)

• Excess wind-to-synthetic gas, sold into existing pipeline infrastructure

• Depleted natural gas wells converting to geothermal or CAES

• Wastewater treatment facilities that use waste heat from natural gas power plants to 

create clean energy products, such as biogas or high-purity hydrogen for fuel cells.

Colocated plant generation can boost capacity factors and returns on investment in transmission 

lines. Natural gas and wind developers may independently have existing partnerships with 

mineral owners, surface owners, industry, and utilities; partnering on locations to establish 

generation could expand the availability of sites to both industries. 

Hybrid Energy Systems

Hybrid energy systems are being developed to increase plant efficiency and flexibility, manage 

renewable variability, and decrease fuel price risk. For example, GE’s 530-megawatt generation 

plant under construction in Karaman, Turkey, will integrate gas, solar thermal, and wind within 

the plant’s design, increasing its efficiency and improving operator control (Olson 2011). Solar 

Energy Generating Systems’ concentrating solar power (CSP) facilities in California combust 

natural gas when solar output drops, allowing the operator to guarantee delivery of electricity in 

support of power purchase agreements. Hybrid systems can also take the form of natural gas 

combined cycle plants using supplemental CSP steam.

Wholesale Power Markets

New market products and associated structures might be created to combine variable renewable 

energy and flexible gas generation into a single firm, low-emissions product (McAndrews and 

Lawrence 2012). This is occurring to a limited extent in the Bonneville Power Administration 

(BPA) balancing area, where Iberdrola Renewables holds contracts with natural gas generators in 

order to supply firm power to utilities, thus bypassing BPA’s less flexible hourly dispatch and 

mitigating forecast errors, energy imbalances, and integration charges (Hardy 2009). 

Alternatively, new market products may be created to ensure the availability of flexible natural 

gas-fired generation to support a high level of renewable penetration (Cochran et al. 2013). For 

example, California Independent System Operator has proposed a flexible capacity product for 

generators with fast ramp capabilities to ensure the system has resources capable of meeting 

increasingly large and rapid net load fluctuations.

5 A dispersed portfolio of diverse generating 

assets including gas and renewables might be managed using an integrated operations 

optimization strategy and be bid into wholesale spot markets to maximize revenue and 

manage risk.

 5 For additional background on this product, see 

http://www.caiso.com/Documents/SecondRevisedDraftFinalProposal-FlexibleRampingProduct.pdf. 
4

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Increased Coordination

Some planners and regulators hold misperceptions about the challenges and capabilities of 

variable renewable electricity generation. And, some regulators still require that proposals for 

variable renewable plants include locally sited natural gas facilities to manage renewable 

variability, even though studies have shown that this variability can be minimized more cost 

effectively through other means, such as broad geographic dispatch of generation sites (EnerNex 

Corporation 2010; GE Energy 2010; Cochran et al. 2012; Porter et al. 2012). Also, if 

incentivized, variable renewable electricity can provide many grid services (e.g., inertial 

response, see Ela et al. 2012). Coordination and stakeholder communications of that capability 

offer a means to avoid stranded capital and maximize returns on limited investments. This in turn 

may result in gas plants more optimally located on the electric/gas transmission system to 

mitigate the risk of congestion; furthermore, with fewer geographic constraints on potential 

constructions sites, gas project developers might be able to leverage existing relationships, take 

advantage of local or state economic development incentives, or use other industry wisdom to 

develop plants at more favorable locations. Separately, the two industries would also benefit 

from better coordination of day-ahead dispatch scheduling of power markets and gas 

procurement scheduling in gas markets (Lee et al. 2012). Scheduling in natural gas and 

electricity markets occurs independently and in disharmony. Generators in NYISO, ISO New 

England, and PJM Interconnection, for example, must purchase gas for their next day of 

operation before receiving operating schedules from the grid for that day (Tabors et al. 2012). If 

generators require more or less gas than their initial estimate, they may have to buy or sell gas in 

the illiquid intraday gas market, or face imbalance penalties. 

Joint Financing

Investments in renewable energy generation have, until recently, been project-specific, illiquid, 

and primarily limited to investors who can utilize the tax credit benefits (Mendelsohn et al. 

2012). Natural gas project financing spans broad mechanisms across the supply chain, from 

production-sharing-for-equity arrangements, to collateralized debt obligations or master limited 

partnerships6 (MLPs) for midstream infrastructure projects, to asset and debt securitization,

7 to 

synergistic joint ventures between equity or institutional investors and experienced power plant 

operators. For renewables, new financing models, such as securitization, expand the types of 

capital available to finance renewable energy (e.g., from pension funds, individual investors, 

crowdsourcing) (Mendelsohn and Feldman 2013). 

These financing models offer several opportunities that build on synergies between natural gas 

and renewable energy. For example, colocated assets could be financed or securitized together—

 6 MLPs allow investors to publicly trade shares of a partnership, which is not subject to the corporate income tax. 

The single layer of taxation and the publicly traded shares lower the cost of capital and increases liquidity. Federal 

law restricts MLPs to select industries, such as oil and gas pipelines; legislation currently under consideration by 

Congress would be needed to expand MLP treatment to renewable energy. For additional background on the 

legislation, see http://www.coons.senate.gov/issues/master-limited-partnerships-parity-act. 7 Securitization pools financial obligations that can then be divided and sold as securities to investors. For example, 

the leases and power purchase agreement payments from solar projects can be pooled from across projects and used 

to back securities, and proceeds from the sale of those securities could be reinvested in new systems (Schwabe et 

al. 2012). 
5

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this could include wind colocated with combined cycle gas turbines, with a utility as the 

“offtaker” or on-site distributed generation of PV and fuel cells, with large commercial entities 

as the offtaker. In addition, independent investments in renewable energy and natural gas can be 

pooled and securitized, reducing systematic portfolio risks (e.g., from changes to fuel prices or 

regulations). Large asset owners could spin off public companies that specialize in renewable 

energy and natural gas under a YieldCo structure.

8 For example, NRG Energy Inc. recently 

completed an initial public offering for its YieldCo. The YieldCo owns a mix of renewable 

energy and natural gas generation assets, listed on the New York Stock Exchange, which will 

pay regular dividends to shareholders.

Examples of Revenue Flows from Bulk Energy Synergies

Figure 1 illustrates the potential flows of revenue from synergies in the bulk energy sector for 

three separate scenarios:

1. An independent power producer (IPP) creates a shell corporation called a special purpose 

vehicle to develop, build, and own colocated plants(e.g., wind colocated with a 

combined cycle gas turbine); the utility is the offtaker. The special purpose vehicle then 

receives debt financing from an investment bank and sells a portion of its equity in the 

special purpose vehicle to pension funds, infrastructure funds, and others. A power 

marketer, not illustrated in the figure, purchases power from the IPP in a day-ahead 

market and sells it to the utility offtaker via a pre-existing power purchase agreement. 

The colocation of assets offers cost savings opportunities for dual utilization of on-site 

infrastructure (e.g., roads and substations), optimized transmission utilization, behindthe-bus management of renewable variability, and perhaps tax benefits.

2. A publicly-traded subsidiary of an energy generator finances and owns a diverse 

collection of assets, including renewable energy generation and natural gas generation, to 

create a low-risk investment portfolio. Multiple utilities are the offtakers. The publicly 

traded company strategically colocates with a drilling rig site owned by an oil and gas 

development company (not pictured) to build a transmission corridor. The company is 

traded via shares on the stock exchange, open to any investor class; dividends are paid 

out of long-term contracts with the utilities. 

3. A load serving entity owns a hybrid gas-solar-wind energy system. The diverse source of 

fuels reduces risk and the firm capacity expands wholesale power market opportunities 

for the utility.

 8

A YieldCo is a public company whose assets consist primarily of renewable and natural-gas fired generating assets 

with regular income streams, such as power purchase agreements. The majority of cash flows from these assets are 

distributed to investors. Unlike MLPs, YieldCos themselves do not create a tax advantage. However, coupling 

renewable assets that receive tax credits with natural gas assets that create taxable income under such a structure 

ensures that the value of the PTC is preserved and not lost to tax equity investors. 
6

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Figure 1. Examples of revenue opportunities from synergies in the bulk energy sector. 

1) Strategically colocated, securitized wind and natural gas (NG) generation assets owned by an IPP. 

2) Publicly traded energy company utilizing a diverse portfolio of assets, joint transmission corridors, and 

novel storage opportunities. 3) Hybrid energy system owned by a utility. Green arrows represent 

revenue flows.

Opportunities for Revenue in Synergistic Bulk Energy Development

Colocation of plant facilities and transmission corridors, new financing mechanisms, and 

coordinated development of renewable and natural gas projects offer significant opportunities for 

cost savings and additional revenue streams. Project developers might avoid such opportunities 

because of added complexity and uncertainty; Text Box 1 intends to address these barriers by 

describing the emerging value propositions of these opportunitiesfor the customer (in this 

example, the utility offtaker) and for the renewable energy and natural gas supply chains.
7

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Text Box 1. Value Proposition of Synergies in the Bulk Power Sector

Colocation, coordination, and wholesale markets offer many opportunities for cost saving 

synergies and additional revenues in the bulk energy sector, including 1) planning and 

development of transmission corridors, 2) improved utilization of transmission lines, 3) 

reduced portfolio risks, and 4) increased market opportunities (e.g., through hybrid systems 

or colocated renewable energy and natural gas). In addition, new financing models can 

expand access to low-cost capital for both natural gas and renewable energy developers, 

and can provide investors a diverse, lower-risk portfolio than single-project investments do.

Value proposition of synergy for:

Customer (utility offtaker)

Improved planning; improved operator control (for hybrid system); lower 

transmission expenses

Energy portfolio with reduced systemic risks

Renewable energy supply chain

More efficient planning of transmission

Improved wholesale power market opportunities from firm capacity

Expanded access to financing and associated increased production

Temperature and other data from natural gas exploration to improve resource 

assessments for geothermal production 

Natural gas supply chain

More efficient planning of transmission

For hybrid systems, lower net emissions (e.g., carbon dioxide, nitrogen oxides) and 

lower marginal costs

Increased financing and associated increased production
8

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Synergies at the “Distribution Edge”

A different set of potential business drivers could leverage gas and renewable use at the

distribution edge. These drivers include industry, commercial sites, homes, and vehicles.

Multiple technology solutions that build from the potential synergies, such as “islandable” 

energy systems, on-site CHP, alternative transportation fuels, and hydrogen production for fuel 

cells and other uses, could meet the evolving, complex energy needs at the distribution edge. 

Companies that incorporate behavioral economics, information technology networks, and 

wholesale power markets would further enhance an integrated portfolio. Illustrative questions at 

the distribution edge include:

• What technology pathways are most promising for synergizing natural gas and renewable 

options for homeowners, commercial businesses, or communities and cities? 

• What combinations of natural gas and renewable energy services address multiple, or all, 

energy services demands? What are the business case and impact metrics for these versus 

“non-coupled” energy services? 

• How can larger industries optimize the use of natural gas, renewable energy, and 

industrial demand to increase financial performance?

• What are the synergies from distributed renewable energy with distributed natural gas, 

and how can firms prepare for changes in their business models?

Industrial CogenerationOptimization for Multiple Markets

Cogeneration illustrates the wider business opportunities that are available in industry when 

using renewable energy and natural gas to generate heat and electricity for use in multiple 

markets. Cogeneration, which can be fueled by natural gas or a renewable fuel, such as biogas, is 

typically sized to provide on-site thermal needs. However, many opportunities exist to optimize 

plant size and operational characteristics to participate in wholesale power markets and provide 

other energy services (see Text Box 2). Further synergies exist from, for example, using CSPgenerated heat to supplement cogenerated industrial process heat. Increased revenue can be 

obtained by providing power during times of peak pricing and participating in ancillary service 

markets. Potential electricity-based revenue streams 

could be further enhanced by combining 

cogeneration with energy services that can occur 

during periods of low power prices, such as 

desalination, which may become increasingly 

profitable in dry or drought-stricken areas. Demand 

response revenue may be material, depending on the 

market. By fueling a plant with biogas, a plant owner

can also participate in renewable energy credit 

markets, contribute to corporate sustainability goals,

and reduce net carbon emissions. 

Text Box 2. Untapped Technical Potential

The untapped technical potential to 

expand CHP at existing industrial 

facilities:

• Sized to thermal needs: 65 

gigawatts in untapped potential

• Sized to thermal needs with no 

cap in power output and ability to 

export: 130 gigawatts

(U.S. DOE and EPA 2012)
9

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Figure 2 illustrates the value chain for this industrial cogeneration scenario.

Figure 2. Examples of revenue opportunities from synergies in the industrial sector. Green arrows 

represent revenue flows. 

Opportunities for Revenue in Synergistic Industrial Cogeneration System

Text Box 3 summarizes the value propositions of these opportunitiesfor the customer 

(industry) and for the renewable energy and natural gas supply chains. 
10

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Text Box 3. Value Proposition of Synergies in the Industrial Sector

Flexible fuel turbines allow for fuel diversification, added energy security, and reduced price 

risk. Industries can also use hybrid CHP-CSP systems to improve heat efficiencies.

Coordination of the renewable energy and natural gas industries with the utilities to address 

demand charges and other concerns regarding distributed generation could facilitate growth 

at the distribution edge. Utilities, with their lower cost of capital and longer investment time 

horizons, might install distributed CHP for large industrial customers and diversify revenue 

streams.

Value proposition of synergy for:

Customer (industrial site)

Fuel diversification offers a fuel price hedge.

Secondary market offers a hedge against lower power prices if optimizing CHP to 

market potential.

Power market participation helps diversify revenue streams.

Inclusion of renewable energy improves corporate sustainability goals and 

potentially generates renewable energy credits.

By participating in a utility self-direct energy efficiency program, the customer can 

avoid the cost of paying volumetric energy efficiency charges by diverting capital into 

a CHP system.

The customer can “island” on-site power system during a wider power outage.

The customer can leverage its existing relationship and infrastructure with the 

distribution company to procure natural gas.

Renewable energy supply chain

CHP provides a new suite of customers for biofuels.

Industrial customers offer an increased market for CSP technologies.

On-site electrolysis or storage (site owner’s secondary product) could improve 

integration of on-site photovoltaic panels (PV) or fuel cells.

Expansion of distributed generation could help clarify tariff structures and 

interconnection issues, which impact plant economics.

Natural gas supply chain

Increased industrial use of CHP can expand the market for natural gas.

The potential for long-term contracts for natural gas will lead to pipeline expansion 

and decreased risk of congestion.

Cooperation with renewable energy developers, public utilities commission, and 

others to clarify tariff structures for distributed generation will facilitate expanding the 

market for CHP.
11

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Residential Smart Hybrid Energy System

Smart hybrid energy residential systems could use multiple fuel sources, smart energy

infrastructure, and on-site generation optimized to provide both low-cost, reliable, clean energy 

for the home and energy services for the distribution grid. Such a home or aggregation of homes 

could use some combination of on-site solar, a natural gas or fuel cell CHP system, energy 

storage including plug-in electric vehicles with so-called vehicle-to-grid capabilities, natural gas 

vehicle refueling, or other technologies. Smart energy infrastructure would allow the home to 

sell electricity to the utility or participate in electric markets (including demand response), and,

potentially, a natural gas demand response model. Natural gas demand response, in conjunction 

with other neighborhood participants, could relieve congestion on the gas pipeline system.

The residential hybrid energy system could reflect any of several ownership and revenue stream 

models. Three examples, illustrated in Figure 3, include:

1. The utility buys and sells electricity from the homeowner and runs a demand response 

program, which aggregates residential demand and sells this into the bulk power markets

(e.g., capacity, ancillary services). The homeowner receives a fee or reduced bill in 

exchange for participation. Smart energy management equipment, PV panels, or other 

technologies are financed and/or owned by the utility. This example would require 

transforming the utility business model from one that increases revenue by increasing

sales to one based on alternative performance objectives.

2. The utility buys and sells electricity from the customer. Equipment is purchased or leased 

by the owner. A third-party energy manager facilitates all additional energy services (e.g., 

demand response) and is the interface between the homeowner and the wholesale power 

market. This third-party business contracts with the customer to lower utility bills via 

energy efficiency upgrades, participatation in wholesale market opportunities, or both. 

The utility could supplement its revenue (not pictured in Figure 3) by providing 

informationto third-party smart energy businesses about customer demand and to 

homeowners about qualified service providersby financing equipment through on-bill 

financing, or by doing both. 

3. The third-party energy business purchases or finances smart energy equipment and 

operates a microgrid, and it has exclusive interaction with a group of homeowners and 

bulk power markets. Smoother thermal loads at the multi-home level may add to the 

business case for purchasing a microturbine or fuel cell. Permitting and siting processes 

could be streamlined if systems are installed across multiple homes or if a centralized 

system is used to serve multiple homes. 
12

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Figure 3. Examples of revenue opportunities from synergies in the residential sector. 1) Utilitymanaged and financed distributed generation and demand response programs; 2) Privately 

owned/leased, third-party managed residential energy system; and 3) Neighborhood microgrid managed 

and operated by third-party energy management company for participation in power markets. Green 

arrows represent revenue flows.

Opportunities for Revenue from Synergies in Residential Systems

The opportunities for revenue from synergies in the residential sector extend across many 

end-uses:

• Electricity — equipment installation and/or financing, energy efficiency audits and 

efficiency measure installations (e.g., energy service corporations), customer energy 

sales, power market participation, demand response program participation, on-bill 

financing of equipment, third-party energy management opportunities, securitization of 

expected electricity sales

• Heating and Cooling — home heating and cooling via natural gas CHP microturbine, 

equipment installation and/or financing, increased natural gas sales

• Mobility — reduced transportation fuel costs via in-home electricity, natural gas, or 

hydrogen refueling, in-home refueling equipment

manufacturing/installation/maintenance, increased natural gas sales.
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Text Box 4 summarizes the value propositions of these opportunitiesfor the customer 

(homeowner) and for the renewable energy and natural gas supply chains.

Text Box 4. Value Proposition of Synergies in the Residential Sector

The smart energy home can participate in wholesale power markets through self-generation, 

demand response activities, or load-shifting using electric vehicles (EV), all of which might 

contribute to reduced energy bills. The home could also—through a smart interconnection of 

PV with CHP, fuel cells, or both—provide frequency regulation, voltage control, power, and 

other grid services. The smart energy system would also complement more robust 

distribution networks, for example, by having utilities offer contracts that optimally queue 

load (e.g., EV, natural gas vehicles) or through distribution network pricing (see, e.g., 

Brandstätt et al. 2011). Localized natural gas-to-hydrogen conversion using on-site electricity 

could enable economic in-home refueling of fuel cell electric vehicles.

Value proposition of synergy for:

Customer (homeowner)

Reduced energy costs; increased security and reliability

Potential to recoup EV leasing costs by participating in demand response market

Insulation from major price fluctuations in electricity and gasoline

Low noise impact of fuel cell equipment 

Renewable energy supply chain

Increased demand for smart home products; better opportunities for load shifting to 

follow renewable energy variability

Integrated energy system allows renewable energy to contribute to ancillary 

services, energy, and capacity markets as firm capacity

Natural gas supply chain

Increased demand in built environment

Potential for natural gas demand response where needed (e.g., Northeast)

Utilities

Diversified business growth opportunities

Variations on this opportunity can also occur in other activities at the distribution edge. For 

example, a campus that creates an islandable energy system could be built from smart networks 

among natural gas and electric vehicles, natural gas vehicles, rooftop PV, microturbines, fuel 

cells that use hydrogen produced from natural gas or biogas, and other technologies. A microgrid 

could allow the system to participate collectively in wholesale power markets.
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This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Commercial Distributed Generation Hybrid Energy System

Some of the synergies at the commercial level can be illustrated through an example of a big box 

store that generates, consumes, stores, and sells energy and energy services. In the example 

illustrated in Figure 4, the store could have a combination of on-site PV, flex fuel CHP, waste-toenergy combustion, and energy storage (ice or battery). For the CHP, the business can procure 

waste from a local municipality and, in combination with waste generated on-site, use waste to 

provide fuel for an on-site flex fuel CHP turbine, which can also consume natural gas. The size 

and types of generating equipment are optimized for the site, power market, and intended 

operational strategy. The PV panels could be owned by a YieldCothe box store pays a prenegotiated monthly rate for energy, which allows significant regular cash distribution to YieldCo 

shareholders. A separate business installs the equipment. The box store self-finances the CHP 

and other non-PV equipment. A third-party energy manager runs a demand response program. 

The store can sell vehicle refueling (CNG) or recharging to retail customers, and it could 

generate additional revenue through exclusive relationships with refueling, recharging, or vehicle 

manufacturers (e.g., providing low-carbon power for EVs of a certain make). Off-peak power 

can be used to create ice for in-store cooling. As heating needs and power market conditions 

change, energy from the CHP system could be dynamically diverted to produce more electricity, 

or into a desiccating air conditioning system9 to provide cooling. 

 9 Advanced desiccant cooling has not yet been economically demonstrated, though many companies are actively 

developing such technology (La et al. 2010).
15

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Figure 4. Examples of revenue opportunities from synergies in the commercial sector. 

A commercial “big box” store provides several streams of energy services to customers and power 

market. A YieldCo finances and manages rooftop PV installations; several transportation fuels are 

available to customers; waste-to-energy combustion is used to provide supplemental electricity and heat; 

electrically islandable store participates in demand response program. Green arrows represent 

revenue flows.

Opportunities for Revenue from Synergies in Commercial Hybrid Energy System

The opportunities for revenue from synergies in a commercial hybrid energy system can benefit 

many businesses:

• Commercial Entity — sell excess electricity and/or demand response via utility or third 

party to bulk power; potentially save costs due to on-site utilization of electricity or 

useful heat; sell electricity or CNG to customers for vehicle fueling

• Electric Utility (e.g., a competitive affiliate serving as the owner, operator, or provider of 

energy services) — sell energy services (equipment, installation, operations, 

management) to business; provide information to third-party energy manager or 

commercial entity. 
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• Gas Utility — sell natural gas to commercial entity (for CHP, CNG); serve as 

information center for smart gas network 

• Third-party Smart Energy Business (owner and/or operator of the system, energy service 

companies (ESCO), equipment retailers) — sell/install equipment and/or energy services 

to commercial entity and/or utility; participate in bulk power market (including through 

customer demand aggregation); provide financing for equipment; securitize expected 

sales from production equipment; provide energy efficiency audits

• YieldCo — earn dividends for shareholders by purchasing and financing PV equipment

• Manufacturers — sell equipment (e.g., PV panels, recharging stations)

• Gas, Waste, and Biogas Supply Chain — sell fuel 

Text Box 5 summarizes the value propositions of these opportunitiesfor the customer 

(commercial operation) and for the renewable energy and natural gas supply chains.

Text Box 5. Value Proposition of Synergies in the Commercial Sector

The islandable commercial hybrid energy system can provide firm capacity, ancillary services, and 

interruptible load into power markets, and the store can potentially provide such services in optimal 

coordination with other partner stores in the same electric market territory. Two sources of 

combustible fuel (gas and waste) for CHP offer fuel diversity and associated reduced portfolio fuel 

risks. If cooling load exists with time-of-day electricity pricing, the commercial entity can use lowpriced electricity at night to make ice, load shift, and provide more electricity to the grid during the 

day when ice is needed for cooling. Advanced desiccant cooling applications for CHP waste heat 

might also be explored. The power system size and operations are optimized across the sources of 

fuel, PV, and demand. The commercial entity is also able to offer, and provide marketing for, lowcarbon vehicle refueling and recharging. Partnerships with manufacturers of alternative fuel (EV, 

CNG, and fuel cell) vehicles may provide joint venture opportunities for cost sharing of refueling 

equipment and a co-branded marketing strategy. Such systems could also provide energy services 

(e.g., transportation or diesel generator fuel) during natural disasters and other instances when a 

large-scale grid outage prevents normal delivery of energy services. Because commercial chains, 

such as big box stores, have multiple locations with similar designs, economies of scale can reduce 

costs for energy system planning and equipment procurement, and can facilitate partnerships with 

manufacturers, equipment installers, financiers, and energy managers.

Value proposition of synergy for:

Customer (big box store)

Lower-priced, reliable, hedged power and energy procurement strategy

Comprehensive energy management strategy for an entity for which energy costs 

represent a significant share of its operating expenses (especially if cooling load)

Potential for additional revenue via power market; selling electricity or CNG to customers 

through charging stations 

Synergistic relationships with refueling, recharging, and vehicle manufactures (e.g., offer 

auto manufacturer’s proprietary charging equipment to provide low-carbon electricity, and 

receive a share of profits)

Renewable energy supply chain

Increased visibility and marketing to retail customers

Opportunities for load shifting to follow renewable energy variability, reducing the 
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integration costs of renewable energy

Potential for licensing intellectual property, such as a car manufacturer’s fast-charging 

station

Low noise impact of fuel cell equipment may make system more attractive for 

commercial applications

Potential to compete in electricity market: To compete with utility energy services, the 

renewable energy developer could partner with the natural gas supply chain 

infrastructure to design and provide a complete, islandable energy system. Such a 

partnership would allow a renewable energy owner to earn greater revenue from markets 

than net metering, as gas can be competitively procured. In addition, net metering 

policies could change, but day-ahead markets are stable. The partnership allows 

diversification of revenue streams, and enables renewable energy sources to participate 

more dynamically in power market. 

Natural gas supply chain

Generation equipment leasing model, similar to that of a PV leasing model, for natural 

gas microturbines, CHP, and other such technologies

Potential partnership with solar leasing company or smart energy infrastructure company 

to provide integrated energy system

Expanded natural gas infrastructure for car refueling

Potential for natural gas demand response system (e.g., reduce consumption when fuel 

needed for other local distribution requirements and in those times rely more on 

electric grid)

TransportationArbitrage Opportunities through Alternative 

Fuel Vehicles

Synergies at the transportation edge build on shared infrastructure of transitioning to alternative 

fuel vehicles and on increasing the arbitrage opportunities of end-users. Synergistic infrastructure 

includes:

• On-site biogas cleaning at landfills, wastewater treatment facilities, livestock operations,

and other facilities that are used by fleets (e.g., municipal waste collection) or sold into 

pipeline infrastructure

• Infrastructure that can receive multiple forms of fuel, including renewables and 

conventional gas

• Liquefied natural gas (LNG)-electric-fuel cell train, fully integrated system able to 

maximize arbitrage opportunities in fuel procurement, sited along co-located natural 

gas/electric transmission corridors

• In-home refueling using existing built environment infrastructure

• Municipal or private stations for fleets and commercial stations for the public.

Figure 5 illustrates some of these revenue opportunities.
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Figure 5. Examples of revenue opportunities from synergies in the transportation sector

Opportunities for Revenue in Alternative Fuel Vehicle Supply Chain

The opportunities for revenue from synergies in the alternative fuel vehicle supply chain include 

many types of businesses:

• Energy Retail Sales (gas utilities, refueling station owners) — refueling station revenue; 

combustion of biogas (or renewable natural gas (RNG)) for electricity, useful heat, and/or 

renewable energy certificates

• Manufacturers — biofuel production and cleaning equipment; refueling stations; in-home 

refueling design and equipment; natural gas vehicle and engine manufacturers, liquefied 

natural gas (LNG)-electric or LNG-electric-fuel cell train manufacturers

• Fuel Suppliers (e.g., natural gas developers, landfill owners, dairy, livestock operations) 

— fuel sales; biogas or renewable natural gas production; renewable fuel trading credit 

sales.

Text Box 6 summarizes the value propositions of these opportunitiesfor the customer (fleet

owner, homeowner) and for the renewable energy and natural gas supply chains.
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Text Box 6. Value Proposition of Synergies in the Transportation Sector

Alternative fuel infrastructure for transportation enables vehicles to be fueled by one or more 

renewable energy or natural gas-based sources (e.g., natural gas, RNG, electricity, hydrogen). 

Broadening the transportation sector to include natural gas, electric, and hybrid vehicles allows a 

diversification of transportation fuel sources, improved energy independence, and potentially 

compliance with renewable fuel standards. In addition, a municipality or other landfill owner could 

install biogas-cleaning infrastructure and sell RNG to the public or to the utility to be blended with 

pipeline gas. An LNG-electric or LNG-electric-fuel cell train sited along transmission corridors 

could take advantage of time-of-day electricity pricing, energy storage, hedged LNG contracts, 

and on-board methane reformers to produce least cost motive force for the train.

Value proposition of synergy for:

Customer (fleet owner/operator)

Reduced fuel cost and diversified fuel risk

Customer (homeowner)

Convenience of home-refueling or recharging, reduced fuel cost relative to gasoline, use

of existing built environment infrastructure and customer-gas utility relationships

Renewable energy supply chain (landfill gas, wastewater treatment facilities, dairy operations)

Increased demand for renewably-sourced natural gas

Opportunity to use existing natural gas infrastructure

Increased market for modularized biogas cleaning systems to create pipeline 

quality RNG

Natural gas supply chain

Considerable opportunity to enter the built environment (in-home refueling infrastructure) 

and commercial gas stations

Ten states allow gas utilities to rate-base natural gas stations.

Potential for fueling with low/zero carbon sources might increase willingness to invest in 

infrastructure, offering immediate benefits for natural gas.
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Pathways to Emerging Business Opportunities

Pathways to realize the business opportunities identified in this paper require significant effort 

and leadership. JISEA and the Center for the New Energy Economy hosted a Leadership Forum 

in September 2013 to discuss emerging business models that capture value from renewable 

energy and natural gas synergies, and to identify actionable next steps. The following list of 

actions reflects a non-comprehensive set of priorities identified by the forum participants and 

presents one possible strategy to move forward.

Actions to Advance Synergies and Enable New Business Opportunities

1. Create metrics for an energy system for 2050

2. Shift the basis of pricing from commodities to services

3. Incentivize the modernization of the generation fleet

4. Explore new utility business models

5. Expand the public dialogue on the synergies of natural gas and renewables

6. Utilize first-mover case studies

These six steps are presented in this section.

1. Create metrics for an energy system for 2050

Metrics that define a vision for an energy system in 2050 would establish economic 

opportunities. The metrics could define goals such as ratepayer protection and reliability, and, if 

they reflect public and private sector agreement, would address investor uncertainty. Metrics 

could also clarify currently ambiguous definitions, such as:

• What are the temporal and physical boundaries of net-zero energy structures?

• What is considered clean energy? For example, is waste heat clean or renewable?

The costs and benefits of energy projects are diverse and distributed uniquely across 

stakeholders. A holistic, systems approach is needed to establish new metrics and methodologies 

for the evaluation of energy projects. Useful metrics would:

• Assess the distribution of costs and benefits across various energy stakeholders

• Account for the relative value of various benefits to all affected entities

• Be used to assign energy project costs proportionally to the distribution of benefits.

2. Shift the basis of pricing from commodities to services

Pricing that more accurately reflects the value of services rather than the commodity 

underpinnings could better reflect costs and benefits of supply, delivery, and demand-side 

resources, and it could better capture the opportunities for renewable energy and natural gas 

synergies. For example, how can the value of clean, reliable power be better reflected in 

electricity pricing? In addition to internalizing environmental externalities, options include:
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• Valuing reliability and flexibility in natural gas delivery for natural gas plants

• Rewarding demand response resources not just for hours utilized but for the 

characteristics of their availability

3. Incentivize the modernization of the generation fleet

While electricity demand growth has slowed significantly in the United States over the past five 

years, new administrative measures—including the EPA’s Mercury and Air Toxics Standard and 

Section 111(d) of the Clean Air Act on existing plant performance standards—could result in the 

need to accelerate modernization of the generation fleet. A portfolio renewal standard (rather 

than a renewable portfolio standard) was one idea mentioned at the Leadership Forum to ensure 

that opportunities for deploying advanced technologies and practices existed. Creating new 

business opportunities for renewable energy and natural gas energy synergies might require 

incentives to replace existing assets that have positive cash flows. Innovative measures that 

reallocate risks, such as those that do so by easing the ability to recover capital on new 

equipment, could provide an incentive for owners to retire plants with only a few years of cash 

flow remaining in favor of a new, cleaner plant with decades of anticipated revenue. A challenge 

is how to make this work in both vertically integrated utilities, as modeled by Colorado, and in 

competitive, restructured power markets.

4. Explore new utility business models

The electric utility industry has expressed concerns about the potential for disruptive forces on 

the distribution edge to threaten the traditional utility business model, which is premised on 

energy sales and regulated returns on investments (Kind 2013; Lehr 2013; Newcomb et al. 

2013). The business opportunities identified in this paper highlight some of these disruptive 

forces, such as those that occur through on-site generation, demand response, and third-partyowned and operated energy systems. These opportunities reconsider traditional ownership 

structures of energy equipment. Yet, barriers to achieving these opportunities persist, and they 

include high interconnection and standby charges, which remain a source of utility revenue to 

maintain and operate the distribution grid. New utility business models could better position 

utilities to provide energy services, including through:

• Expansion of products, such as facilitating wholesale market participation and financing 

energy services and equipment

• New performance incentives, including decoupling energy sales from utility revenues to 

reward energy efficiency (Binz et al. 2012; Cavanagh 2013)

• Changing the role of the utility to that of a system integrator, with a focus on distribution 

system market and operations (Newcomb et al. 2013)

• Establishing the electricity grid as a public good, not a natural monopoly, to reflect the 

value of the grid primarily for its provision of reliability — this would in turn shift the 

basis of utility remuneration, such as from demand and standby charges to public funds.

5. Expand the public dialogue on the synergies of natural gas and renewables

The end user is the focus of an energy systems integration perspective. The desired attributes of 

the energy (e.g., clean, reliable, low-cost)and the social, cultural, and political contextwill 
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This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

be specific to the consumer. Public and private sector leaders will benefit from communication 

about different visions for user-specific energy services and from learning how roles and 

responsibilities (for consumers, businesses, regulators, and policymakers) may evolve. These 

dialogues will help shape business models and empower consumers.

6. Develop full case studies

This paper explores a broad range of business opportunities. A deeper investigation of a few

opportunities—in the form of a case study—could help evaluate potential revenue estimates and 

necessary conditions (e.g., technological capabilities, institutional contexts, policies, consumer 

behavior, workforce skills). 
23

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Conclusions

Traditionally, natural gas and renewables often compete for investments, and public and political 

support. However, potential new, value-added opportunities may exist in which the two 

resources provide system-level solutions that are technically and financially attractive and may

garner strong and broad stakeholder support. This paper presents some exploratory, financially

driven opportunities for the synergistic use of natural gas and renewables. These opportunities 

expand far beyond the most commonly considered pairing of gas and renewablesto minimize 

risk in a portfolio of investment assets. New technologies, financing mechanisms, carbon 

constraints, and behavioral expectations are expanding opportunities for gas and renewables in a 

variety of market sectors and structures. Together, gas and renewables can help provide 

improved energy system flexibility and resiliency; meet increasingly sophisticated customer 

needs; and prepare for larger, unpredictable changes in the future. The landscape—of both 

options for taking full advantage of the investment as well as the revenue opportunities offered 

via technical and financial system-level solutions—is large, allowing for unprecedented

innovation and leadership. 
24

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This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Appendix. Recent JISEA Publications on Natural Gas 

and Renewable Energy

Lee, A.; Zinaman, O.; Logan, J. (2012). Opportunities for Synergy Between Natural Gas and 

Renewable Energy in the Electric Power and Transportation Sectors. NREL/TP-6A50-56324. 

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http://www.nrel.gov/docs/fy13osti/56324.pdf.

Lee, A.; Zinaman, O.; Logan, J.; Bazilian, M.; Arent, D.; Newmark, R.L. (2012). “Interactions, 

Complementarities and Tensions at the Nexus of Natural Gas and Renewable Energy.” 

Electricity Journal (25:10); pp. 38–48. Accessed January 3, 2014: 

http://dx.doi.org/10.1016/j.tej.2012.10.021.

Logan, J.; Heath, G.; Macknick, J.; Paranhos, E.; Boyd, W.; Carlson, K. (2012). Executive 

Summary — Natural Gas and the Transformation of the U.S. Energy Sector: Electricity. 

NREL/BR-6A50-57702. Golden, CO: Joint Institute for Strategic Energy Analysis. Accessed 

January 3, 2014: http://www.nrel.gov/docs/fy13osti/57702.pdf.

Logan, J.; Heath, G.; Macknick, J.; Paranhos, E.; Boyd, W.; Carlson, K. (2012). Natural Gas and 

the Transformation of the U.S. Energy Sector: Electricity. NREL/TP-6A50-55538. Golden, CO: 

Joint Institute for Strategic Energy Analysis. Accessed January 3, 2014:

http://www.nrel.gov/docs/fy13osti/55538.pdf.

Logan, J.; Lopez, A.; Mai, T.; Davidson, C.; Bazilian, M.; Arent, D. (2013). “Natural Gas 

Scenarios in the U.S. Power Sector.” Energy Economics 40(November 2013); pp. 183–195.

Accessed January 3, 2014: http://dx.doi.org/10.1016/j.eneco.2013.06.008.